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Council use of debt collection agencies continues to rise

Posted in September 2015

Research conducted by Money Advice Trust the debt charity has highlighted the increasing use of debt collection agencies by councils. In England and Wales combined local authorities instructed debt collectors to chase payment of parking debts, council tax, overpayment of benefits and business rates a staggering 2.2 million times in 2014, with that figure expected to rise by at least 15% in 2015.

Calls to limit debt collection instructions ignored

The figures represent an increase of over 20% compared to 2013 figure of 1.8 million. The 2014 increase is quite surprising when you take into account the number of debt charities and organisations that urged councils to improve their debt recovery procedures after the 2013 figures were released. It is apparent that these calls for moderation have been ignored and the increase in collection activity and the use of external agencies is set to continue to rise.

The Money Advice Trust, which operates the National Debtline, reported marked variations in debt recovery procedures throughout the UK, inferring that a postcode lottery in effect controls how businesses and residents who find themselves in arrears to the council are treated.

Chief executive, Joanne Elson, commented: “Our research in to the use of debt collection agencies by local authorities began in 2012. The findings of this research resulted in widespread condemnation and calls for reforms to council debt collection activities. We hoped and expected that there would have been at least some improvement in the situation by now, however, over 50% of local authorities have actually increased their reliance on external agencies to recover unpaid arrears and debts”.

“There is something fundamentally and seriously wrong here. We offer debt advice at the front line, we are inundated with calls from vulnerable people and know that sending in debt collectors just makes the situation these people find themselves in worse, it does not solve the problem”.

Ms Elsom explained further: “The action taken by Debt collection agencies is not only distressing for those in debt, but also counterproductive for councils; our research clearly shows that councils who use external collectors are less successful in actually recovering unpaid debts than those councils who operate internal collection practices”.

Over 25% of the people that called Debtline in 2015 were in arrears with council tax and the tax has now become the fastest growing debt category, which accounted for over 1.2 million council instructions to an internal agency in 2014.

The figures for individual councils showed that the London Borough of Dagenham and Barking in relation to the number of households in its jurisdiction used debt collection agencies the most with 34,000 instructions in 2014. Interestingly most of the top ten places were filled by London Borough councils.

At the other end of the scale, there were nineteen suburban local authorities with a responsibility to collect council tax who used debt collectors in less than 1% of cases of arrears. Just three councils, the Isles of Scilly, Wyre and Charnwood made no use of external collection agencies.

Government cuts to blame for the rise in debt collection instructions

Chair of the Local Government Association, Councillor Claire Kober, commented: “Council tax support from Government funding has declined sharply in recent years creating a vacuum and the need for councils to find £1 billion by 2016 to maintain tax relief for low income households. Many councils face a desperate choice, do they offer relief to low-income families on benefits who might never have paid council tax or the working poor who are struggling to make ends meet, there are simply not enough funds available to help everyone that needs help. The only alternative is to spend less on council services which would affect everyone”.

“Councils do not want to demand low income families to pay more, but, these local authorities have had to deal with a 38% reduction in core funding from central Government to pay for local services in the last 5 years. Councils throughout England and Wales simply have no choice but to scale back the discounts offered on council tax”.

“Debt collection agencies are used as a very last resort by local authorities. There is a standard protocol and prior to the instruction of an external organisation in-house attempts to resolve the situation must be made. Letters will have been sent, telephone calls will have been made and people will have been made aware of the financial support available to them, including the arrangement of salary or benefit tied repayment agreements”

The Councillor further commented that: “Local authorities have a duty of care to collect council tax in order for essential services to be provided. It is council tax that pays for waste collection, road repairs the care of the elderly, if nobody paid council tax, our society would grind to a halt”.

In reply Ms Elsom stated: “Yes, the duty to collect arrears is clear and the increase in funding pressure councils are under cannot be underestimated, but, many councils are just too quick to refer cases for debt collection”.

She went on to suggest: “There are far better options available, including earlier detection of arrears before they escalate, early preventative measures and increased contact with the people who have fallen in to arrears”.

The jury is still out

Ms Elsom’s suggestions have been made based on the findings of the Money Advice Trust research and it will be interesting to find out if local authorities finally start listening to advice from organisations that deal with the consequences of debt collection, or if the rise in instructions continues as budgets are further stretched by Government spending cuts.